Tongue firmly planted inward cheek, I described a mechanical trading strategy that was impressive inward its mightiness to lose money. The logic behind the strategy was based upon the stock market's vogue to opposite swings of strength together with weakness. I believe this logic has worked because nosotros receive got a cracking bargain of coin chasing a express publish of opportunities inward the equity world. This creates increased dissonance together with volatility at all fourth dimension frames.
I don't detect such choppy atmospheric condition express to US stocks. Let's receive got emerging markets equities, every bit represented yesteryear the EEM exchange-traded fund. We tin forcefulness out exercise a 20-day moving average of EEM together with Bollinger Bands roughly that average at a width of 2 criterion deviations. Note that 2 criterion deviations is a metric that scientists employ to decide whether or non the difference betwixt 2 agency is statistically significant. So, inward a unloosen sense, nosotros tin forcefulness out exercise a trading organization that waits for a "significant" vogue earlier jumping aboard. If EEM closes to a higher house its upper Bollinger Band, nosotros would approximate this every bit a signficant uptrend together with would buy. If EEM closes below its lower Bollinger Band, this would qualify every bit a pregnant downtrend, together with nosotros would (short) sell. Positions inward both cases would hold upwards closed out on the offset daily closed inside the envelope defined yesteryear the Bollinger Bands.
Over the final 3 years, such a organization would receive got generated 46 trades inward EEM. Eleven of those trades would receive got been profitable together with 35 would receive got lost money--another organization that loses three-quarters of the time. The average profits per winning merchandise was .48, together with the average loss per losing merchandise was .79. Overall, across the 3 years, the organization lost an incredible 22.65 points (EEM began the menses trading almost $33 per share).
It takes existent science to detect a organization that non entirely loses to a greater extent than oftentimes than it wins, merely likewise produces larger average losers than winners. But that is what has happened when traders receive got waited to jump aboard trends i time they receive got decease "significant". Once a vogue has been clear, a reversal has been near--abroad, every bit good every bit here.
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